Dutch Flower Cluster: Demand Conditions

Introduction. Demand Conditions

• The case of the Dutch flower industry helps explain the factors proposed by Porter. Firstly, the Danish population is highly educated and developed. Approximately 33% of the Dutch workforce has an advanced degree (Porter et al., 2011). There are also 15 universities in the Netherlands, and two of them are located in the top-100 ranking of world universities (Porter et al., 2011). Therefore, the Netherlands presents an environment with high standards of political and consumer culture where customers have demanding and sophisticated preferences.
• Secondly, it is evident that internal processes encouraged the state and companies to innovate. The Netherlands pioneered free global trade by creating the first inter-European stock exchange, Euronext (Porter et al., 2011). Nevertheless, it seems that domestic market and demand were not crucial in the establishment of the innovations. On the contrary, the lack of a high domestic demand forced the companies to switch to international trade.

Factor Conditions

• The Netherlands, by their own forces, created and increased the value of their factors of production through innovations. First of all, they put a lot of effort into increasing the skill of human resources. By creating the world’s best universities and developing innovative practices, the Netherlands achieved a “well-educated and sophisticated workforce” (Porter et al., 2011, p. 2). The Dutch officials also encouraged the establishment of a top-level network of research organizations. The Plant Research International center and The Flower Bulb Research Center are specialized to the needs of the flowering industry (Porter et al., 2011, p. 2). The Netherlands, through rational investment in these research centers, created the factors that other countries cannot imitate.
• The Dutch case also shows how is it important to innovate factors that seem to be good enough. It prevents industry from stagnation and slowdown in the pace of development. Although the Netherlands has always had an extensive logistics network, it continued to invest heavily in logistics. The Netherlands invested 6% of its GDP in transportation systems in 2006, which is higher than the European average (Porter et al., 2011). Porter et al. (2011) also note that in 2001-2009 the Netherlands made significant investments in the widening of railways and construction of high-speed rail connection with Germany. That shows how the Netherlands invested in specific factors that help the flower industry to develop and expand.

Supporting and Related Industries

• The Netherlands has a range of top-world industries that support the development of the flowering industry. In the case of the Dutch economy, it is beneficial to focus only on supporting industries to understand their relative value. Porter et al. (2011) indicate that the Netherlands is the top world leader in the “development and supply of floriculture propagation material” (p. 8). To develop this industry, Dutch officials needed to heavily invest in the breeding of plants because this process is greatly intellectually demanding. Then companies registered new flower varieties through the Community Plant Variety Office, which made some species such as tulips and anthodium the exclusive types of Dutch exports.
• Another way to increase the development value is to make the disadvantage of some industries into a competitive advantage. Rising costs of energy and electricity forced the government to finance the development of energy-efficient greenhouses (Porter et al., 2011). That technology helped absorb the power accumulated through the summer period in winter. In fact, the system of greenhouses with irrigation systems gained popularity in the Netherlands, which enabled it to achieve a competitive advantage.

Strategy, Structure, and Rivalry

• Although domestic competition seems to damage the economies of scale, much research shows that internal competition reinforces innovations and progress. The Netherlands let the internal market self-regulate with “both the Consumer Authority and the Competition Authority relied heavily on industry self-regulation” (Porter et al., 2011, p. 2). As a result, Netherlands has 902 flower-growing companies in 2020 (Gelder, 2021). Nevertheless, there were 2091 companies in 2007 that shows a significant drop in the number of competitors (Gelder, 2021). One of the explanations of that trend is that the internal flower market consolidated to oppose the foreign market.
• In recent years, international competition in the flower industry has increased. While Colombia, Ecuador, and Kenya traditionally were present in the international flower market, China market is constantly growing and projected to become a decent rival of the Netherlands (Porter et al., 2011). The Netherlands tries to participate in this development by directly influencing the worldwide flower industry development. For example, in 2005, the Dutch company Van den Berg Roses transferred their technologies of greenhouses and managerial practices to China as a part of development program(Porter et al., 2011). This foreign development of Dutch firms was achieved through domestic competition, which was determined by economic processes well-equipped companies to expand their infrastructure.

Government Policy

• A government needs to elaborate policies that will help private companies to innovate and will not make them dependent on governmental help. In the case of the Netherlands, state officials implemented many green policies, mostly related to the preservation of a healthy environment. The Dutch government both saved the environment and replaced costly electric energy with renewable resources that accumulated for the wintertime (Porter et al., 2011). This approach made the management of the Dutch flower industry specific that other countries cannot imitate.
• The Dutch government’s main goal was to find places where innovations are possible and invest there. This strategy helped create the advanced logistic network. energy supply systems, water supply technologies, computer systems for agriculture, and so forth. At the same time, they did not interfere much in domestic competition, allowing companies to decide which technologies they want to develop. Thus, the Dutch government served as an effective assistant to the industry, and not as a controller of business decisions.

References

Gelder, K. (2021). Number of flower growing companies in the Netherlands from 2007 to 2020. Statista.

Porter, M. E., Ramirez-Vallejo, J., & Van Eenennaam, F. R. E. D. (2011). The Dutch flower cluster. Harvard Business School Strategy Unit Case, (711-507).